WASHINGTON - HALFWAY through 2009, the US economy is still struggling in recession amid fragile hopes for recovery by the end of the year.

This curbed some of the optimism generated by moderating job losses in May and other reports suggesting improving trends in key areas such as manufacturing and consumer spending.

With the economy still bleeding jobs, some analysts fear a new downward spiral fed by falling incomes that cut into consumer spending, the lifeblood of economic activity.

Meny Grauman, economist at CIBC World Markets, said some analysts have gotten ahead of themselves in anticipating an economic recovery.

'It's a question of the pace of decline and not recovery. The economy continues to contract at a slower pace than at the beginning of this year, but it's still a steep ride.'

The US economy shrank at a 5.5 per cent pace in the first quarter, based on the latest official estimate, following a 6.3 per cent slide in gross domestic product (GDP) in the fourth quarter - representing the worst slump in decades, resulting from the collapse of a housing bubble and global credit squeeze.

Many analysts expect the third quarter that began July 1 to show flat or improving economic activity as a recovery takes hold, but the latest labour report is raising doubts.

Sal Guatieri at BMO Capital Markets said that 'job losses remain massive and are a continuing source of downside risk to the economic outlook.' Until now, many economists had been revising their forecast upward.

Deutsche Bank economists have upped their US and global forecasts while warning of soft conditions. 'The economy will remain fundamentally soft for the foreseeable future. The labour market has not yet bottomed, household buying power is negligible and consumers are highly leveraged with little access to credit.'

Joel Naroff at Naroff Economic Advisors said recovery doubts will grow following the payrolls data. -- AFP